Investors in Asia are speculative that the European Commercial Bank will not cut interest rates because of the rise in inflation, and as a result, the U.S. Dollar weakened in Asian markets on Tuesday, March 31, 2008. According to reports, consumer prices in the Euro Zone increased by 3.5% in March, which is significantly higher than the 2% target set by the European Commercial Bank. This increase is also the highest in 15 years and it confirms investors’ speculation that the European Commercial Bank will hold interest rates steady.
Analysts are speculating that, given the liquidity crisis and the poor state of the U.S. economy, the Federal Reserve Bank will cut interest rates further, which will make the U.S. Dollar unattractive because of the reduced yield on U.S.-denominated assets.
On March 31, 2008 at 05:00 GMT, the Euro traded at $1.5772, compared to $1.5751 in early trading in Sydney. The U.S. Dollar traded at 99.95 yen, compared to 99.76 yen traded late in New York. The yen declined because investors became pessimistic about the Japanese economy following the result of the Tankan survey, which showed that the index of business sentiment dropped from 19 in December 2007 to 11 in March 2008.